Election 2015: Beware taking on the predators … and the property market
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Version 0 of 1. London’s upmarket estate agents could barely conceal their glee at Thursday night’s Conservative victory. With the shadow of a Labour victory lifted, their high-rolling clients, freed from the threat of the mansion tax, or loss of non-domiciled tax status, apparently got straight on the phone on Friday morning to sort out a few weekend property viewings. “It is going to be an exciting time to be in the London market over the summer!” gushed Sotheby’s Michelle van Vuuren. It couldn’t have been clearer who were the real winners from Thursday’s poll. Buy-to-let investors have dodged the threat of long-term, rent-controlled tenancies; City bankers have avoided a new bonus tax; utilities will not be forced to submit to tougher market intervention. As one Financial Times headline had it, “Wealthy breathe a sigh of relief at Tory victory.” And one message the shattered opposition – and the politicians as a whole – may well take away is that politicians threaten to tinker with Britain’s capital-owning classes at their peril. When Miliband made the deliberate decision to take on the “vested interests” of big business and the super-rich, he reaped a whirlwind. Business leaders riled by the idea of paying the mansion tax and the 50p top rate – and nervous about Miliband’s “anti-business” mood music – issued stern warnings about the risks of a Labour government. Newspapers whose owners shelter their earnings behind non-dom status joined in the scaremongering about a Labour government being held hostage by the hard-left Scot Nats. Against such powerful forces, Miliband’s promise to “make Britain work for working people” failed to capture the imagination of a public still scarred by the deep recession that happened on Labour’s watch. With the poll out of the way, and George Osborne once again ensconced in Number 11, the message will now be steady as she goes, our long-term plan is working, let’s crack on with tackling the deficit. Yet this is an economy with deep structural problems – problems for which the Conservatives have so far proffered few convincing solutions. Osborne’s hoped-for rebalancings – imports to exports; London to the “northern powerhouse”; debt-fuelled consumption to “paying our way in the world” have yet to materialise. Productivity has been woefully weak, undermining the prospects for future growth. But housing is perhaps the best example of the gulf between the scale of the challenges facing Britain, and the rhetoric of the not-very-uplifting election campaign. All the parties pay lip service to the idea that Britain is locked in a housing crisis, and they’re right. The proportion of 25- to 34-year-olds owning their own home has fallen from 59% to 36% in a decade. House prices rose by just over 7% last year (almost 18% in London); wages by 2.1%. The average house now costs more than five times earnings – back at levels seen before the recession. Miliband's promise to 'make Britain work for working people' failed to capture the imagination of the public The Tories’ solution? An inheritance tax cut, so wealthy families can pass on their home to their kids; and a promise to extend right-to-buy to housing association tenants. Osborne had already used his budget to launch plans for a Help to Buy Isa, in which the government will match first-time buyers’ savings, helping them raise a deposit. These bungs were almost universally derided by experts. Paul Johnson, director of the Institute for Fiscal Studies, with his usual tone of baffled disdain, said: “It is rather odd to give this special treatment to housing, given that owner-occupied housing is already extremely tax-privileged.” Christian Hilber of the London School of Economics used a blogpost during the campaign to bemoan the paucity of the debate about housing and to warn that despite their target of building 200,000 new homes a year, “one can be entirely confident that the Conservative proposals will do nothing to increase the number of houses built. This means their proposals will make housing even less affordable, because they will subsidise demand but not increase supply.” Pension reforms enacted in April that allowed the over-55s to withdraw their savings and spend them as they please will be another kicker for the housing market. Britain’s chronic lack of affordable housing already constrains social mobility, deepens inequality and causes suffering for thousands of families. Over the next five years, as the Conservatives battle to cut the bloated housing benefit bill and reach their £12bn target for welfare cuts, the hardship will surely only worsen. But it’s just too politically difficult to tell Nimbies they need to give up a chunk of the greenbelt so young people not lucky enough to inherit a property have somewhere to live – let alone to follow the IFS’s proposal for a much more progressive council tax. Far easier to let Mark Carney and his colleagues at the Bank of England, with their new powers to restrict mortgage lending, cool the market down while the Treasury simultaneously fans the flames with populist wheezes. It’s cynical, but it works – at least until the next crash. Labour didn’t have the answers to the housing crisis either. While hugely symbolic, the mansion tax was little more than a gesture, but it did at least aim at reining in demand for housing, rather than putting a rocket under it. As Labour ponders the causes of its shattering defeat, it may conclude that – in housing and elsewhere – it is simply too risky to try to shake up Britain’s particular brand of capitalism, or to do battle with what Miliband called the “predators”. But his successor would be wise to recall that the catastrophic loss of public confidence in Labour’s reputation for economic competence, from which the party has yet to recover, followed not from intervening too much in markets but from letting them rip. For now, in London’s crazy property market, the party goes on. |